Investors & landlords

Taxes paid to other countries qualify for the FTC when:

• You paid the tax on your income to a local or provincial government.
• You were legally obligated to pay the tax
• You have already paid or accrued the tax.
• You did not gain from paying the tax.

There are several types of Foreign Income you can report to claim a Foreign Tax Credit.

1. Section 951A category income: A global intangible low-taxed income (GILTI) made by U.S. shareholders of certain controlled foreign corporations but doesn't include passive category income.
2. Foreign branch category income: This involves business profits made by U.S. persons from one or more qualified business units (QBUs) in one or more foreign countries but doesn't include passive category income.
3. Passive category income: Includes income from interest, dividends, royalties, and annuities.
4. General category income: Includes your wages, salary, and any highly taxed passive income. Income becomes "highly taxed" for IRS purposes when the foreign country's tax rate is higher than the U.S. rate.
5. Section 901(j) countries: Countries the U.S. has sanctioned for repeatedly providing support for acts of international terrorism, countries with which the U.S. doesn't conduct diplomatic relations, or countries whose governments aren't recognized by the U.S. You must report earnings from any of them.
6. Resourced by treaty: Certain income resourced by treaty relates to tax treaties the U.S. has with other countries. Complete Form 1116 for this category if the country in which you worked has a special agreement with the U.S. about how it taxes your income as a foreigner. Under "resourced by treaty" agreements, all your income — including any money you made in the U.S. — counts as income from the treaty country when figuring out the taxes you owe.
7. Lump-sum distributions: These include income you received from a foreign-sourced pension plan.

This article has more details on Claiming the Foreign Tax Credit.

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